BDI Off Recent Peaks

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MIRAL SHIPPING FREIGHT MARKET REPORT

(Tickers: SEA, EGLE, GNK, BDI, DSX, NAT, SINO, PRGN, XSEAX, DIA, SPY, QQQQ, NYX, DOG, SDS, QLD, EWZ, XBZLX, BZF, PXI, SNP)

BDI Off Recent Peaks

In the past two weeks, the BDI hit a peak, then corrected approximately 20%, then began another move higher to test the near-term highs of two - three weeks ago. It appears as though the freight market has now tested these highs and did not break through them. As has been the case recently, the Capesize segment (ships over 100,000 tons deadweight) has been the largest beneficiary with historically high freight differentials over panamax vessels (60-80,000 tons deadweight). Rates for Supramax (50-60,000 dwt) and handymax (40-50,000 dwt) vessels have been firm but have lagged behind the larger vessels for the most part. Smaller handies (under 40,000 deadweight) have continued to participate least in this rally.

As of today (June 23), The Baltic Freight Index stood at 3874, while the capesize, panamax and supramax indexes were 7441, 3021 and 1757, respectively. Last Friday, June 19th, the BDI was at 4070, only about 200 points from the recent highs.

The same market forces have been at work during the past two weeks as have been the case since February. Chinese iron ore demand is the single largest factor driving demand for capesize and panamax vessels, and port congestion in Brazil, Australia and China has continued. There also have been increases in mineral shipments (mainly iron ore and coal) to Europe and Japan, contributing to higher rates for capes and panamaxes in the major Atlantic and Pacific trade routes.

As it looks that the BDI has tested the recent highs of two weeks ago, and has now started to retreat, there is a good chance the market will correct about 20% or more to test the near-term lows - particularly in the capesize and panamax sizes. This must be watched carefully.

Key issues that could determine the near-term moves in the BDI:

1. The differential between capesize and other vessel classes remain much wider than historical averages. Thus, either capesize rates should drop or those of panamaxes should increase. As of today, these rates have begun to narrow.
   
2. Commodity prices, steel in China being among the most important, are another indicator. For example, if Chinese steel prices do not increase with freight rates, eventually demand for iron ore and vessels should drop. Prices of several commodities dropped yesterday; whether this trend continues is uncertain and needs to be watched.
   
3. Developments in Iran can also potentially have an effect; freight could be impacted if the conflict intensifies and pushes up the price of fuel and disrupts or re-routes commodity flows - particularly for smaller vessel classes, and of course, oil tankers.
   
4. Finally, supply of new vessels may be an issue but so far looks like their impact would occur later this year.

We will keep you updated on important developments.


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